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Thursday April 17, 2014
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What Price Pensions?

 

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county paid more than $20 million into the funds last year, and the contributions required under its union contracts are rising at a rate of 7 to 8 percent a year.

Washtenaw County is far from alone. Between more retirees, fewer contributors, increasing health care costs, and the worst financial crisis since the Great Depression, other local governments, school districts, states, and even nations are facing the same problem. Even among Michigan counties, others have it much worse--Wayne County, home to bankrupt Detroit, has unfunded liabilities of $2.1 billion. Even so, Washtenaw's add up to $775 for every man, woman, and child in the county.

Like many governments and businesses, the county used to promise its workers a guaranteed level of pension income. Such "defined benefit" plans allow employees to plan securely for retirement--but they are risky for employers, because they have to make those payments even when financial conditions worsen. So in the 1990s, Washtenaw started putting newly hired workers into "defined contribution" plans. They had their own retirement accounts, and the county promised to contribute to those accounts only as long as they worked. How much the employees would have for retirement depended on how much they themselves contributed and on how well their investments did.

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